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EXERCISE C

(i) Monthly (end-of-month) 10-years government bond interest rates for the US and the Norway
economy are presented below in Figure 3
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10-years interest rates for the US and the Norway economy

(ii) Monthly (end-of-month) exchange rate between the US and the Norway economy, that is,
USD per NOK is presented in Figure 4
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USD/NOK Exchange Rate

EXERCISE D

Using the data in (c) and the (uncovered) interest parity condition, calculate the X-years ahead
expected exchange rate
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Expected exchange rate USD/NOK compared with exchange rate of USD/NOK using UIP

Figure 6
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From Figure 5, it can be seen that in the year 1987 the expected
exchange rate was -35,67199, while the actual exchange rate for the same year was 6,9266
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Looking back at 2007 the expected exchange rate was 5,883,
which almost equaled the actual exchange rate that was 7,423
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How good is the (uncovered) interest parity condition as a prediction model for the realized
exchange rate? Comment on possible reasons for its success/failure
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Meaning that the expected exchange rate does not
meet the spot exchange
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EXERCISE E

Using the same data and the software you have chosen to work with (Excel, Gretl, Eviews,
SPSS, R, etc) estimate a simple regression and test whether the (uncovered) interest parity
condition holds in the data
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Explain the results of the
regression and the test you performed
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Figure 7
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Figure 9
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The data from
Table 7, shows that R square equals 0
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Because of
this, it can be concluded that UIP does dot correctly predict the expected USD/NOK exchange
rate
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5% because it is a 2 tailed test
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We see that p-value equals 4
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025) equals 1,960
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Conclusion: From analysing the data we see that there is not a good relationship between the
expected exchange rate and actual exchange rate of USD/NOK
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EXERCISE F

The US policy rate, the fed funds rate, reached its zero-lower bound (ZLB) at the end of 2008
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Considering you trust the
(uncovered) interest parity condition, describe how the Federal Reserve may achieve a
depreciation of the US dollar against

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